Remarks by John Pecman, Commissioner of Competition
Speech to Bennett Jones LLP
February 17, 2015
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Thank you for inviting me to speak to you this evening. I’m joined by Stephan Luciw, Assistant Deputy Commissioner, Toronto Office. We’re both looking forward to answering your questions at the end of my remarks.
Tonight, I’d like to talk about four things: first, new developments at the Competition Bureau; second, our work to promote compliance with the laws we enforce; third, the Supreme Court’s decision in Tervita; and finally, the Ontario Superior Court’s decision in Nestlé.
Retirement of Sheridan Scott
But before I begin, I would be remiss if I didn’t acknowledge Sheridan Scott’s recent retirement from Bennett Jones. Many of us here have had the good fortune of counting Sheridan as a friend and colleague over the years, and I’d like to take a few minutes to highlight some of her significant contributions relating to policy, enforcement, advocacy and the Bureau’s international profile.
Sheridan was the Commissioner of Competition from 2004 to 2009. In that time, she oversaw the preparation of the Bureau’s 2008 recommendations to the Competition Policy Review Panel. The Wilson Panel’s final report led to significant updates to the Competition Act. Sheridan laid the groundwork for those invigorated provisions, which provided the Bureau with much more effective tools to review mergers and combat anti‑competitive behaviour. For that, we owe a great deal to Sheridan’s foresight and energy.
Then there was Sheridan’s leadership of the Bureau’s major enforcement cases. Few cases have made as big a splash as the Bureau’s announcement in 2008 of criminal charges being laid against numerous individuals and companies for their role in fixing the retail price of gas in four local markets in Quebec. So far, 39 individuals and 15 companies have been charged in this ongoing case. To date, 33 individuals and seven companies have pleaded or were found guilty with fines totalling over $3 million. And the splash made by this case got even bigger when two related class actions lead to last year’s landmark ruling by the Supreme Court of Canada, which confirmed the rights of civil plaintiffs to access wiretap evidence collected by authorities in criminal investigations.
Sheridan’s tenure as Commissioner was also about balance. Alongside enforcement, Sheridan renewed the Bureau’s advocacy efforts. She was behind the Bureau’s first market studies under the Competition Act, including the Bureau’s study of the Canadian pharmaceutical sector. That study formed the basis of the Bureau’s 2008 report on improving generic drug competition in Canada. Since the Bureau published those recommendations, a number of Canadian provinces have made regulatory changes in order to reduce generic drug prices for both public and private sector buyers. Through that market study, Sheridan demonstrated that advocacy efforts can result in more competitive markets. As I have said before, the introduction of competitive forces within a regulated market can have just as much impact on the Canadian economy as enforcement proceedings in particular markets.
Last but not least was Sheridan’s enormous contribution to raising the Bureau’s profile on the international stage. She served first as Vice Chair and then as Chair of the International Competition Network (ICN), where the Bureau took a central role in promoting international collaboration and convergence in competition policy and practices. She was a major force behind the ICN’s Advocacy Working Group, which continues its work today to enhance the effectiveness of advocacy and to promote the benefits of competition to consumers, businesses and policy-makers around the world.
Those are just a few examples of how Sheridan’s work has influenced competition law and policy. Her many contributions to the efficiency and competitiveness of the Canadian economy will continue to serve both businesses and consumers well into the future. I wish Sheridan the very best in all her future endeavors. I know she will remain an important part of the competition law community in Canada.
Let me now turn to some of the new and ongoing developments at the Bureau.
Most of you are aware that we are re-aligning our organization to improve the way we work together, and I want to provide a quick update on that front. Realignment is focused on two goals: first, to effectively leverage all of our resources so as to maximize the Bureau’s contribution to a more competitive marketplace in Canada; and second, to establish a better and more complementary balance between our enforcement and competition promotion activities.
To make that happen, we’re taking steps to align our internal branch structure, our decision-making processes and our strategic planning approach. To date, we’ve combined seven of our branches into three primary lines of business. We’re putting into place a new system of governance that will ensure a more collaborative and cohesive cross-branch approach to our enforcement and competition promotion activities. And we’re implementing an integrated three-year planning process that will align each of those activities with specific strategic objectives for the organization.
On this last point, I’m happy to announce that later this month, we will be publishing our strategic objectives for the next three years and inviting you, our partners and stakeholders, to provide your input. The Bureau will then publish a final 2015-2018 strategic plan in the spring.
In general, the key elements of realignment will be largely in place by early summer, and you will be hearing more about the implementation of our new structure between now and then.
The other developments at the Bureau I’d like to highlight are two recent appointments.
First, I’m very pleased that Jeanne Pratt has accepted the position of Senior Deputy Commissioner of the Mergers Branch. Jeanne first joined the Bureau in 2009 as Special Legal Advisor to the Commissioner, where she provided input on a range of issues, including litigation. Prior to joining the Bureau, Jeanne was a lawyer in private practice where she advised and represented clients before the courts and Competition Tribunal on all aspects of competition law and related litigation, including numerous mergers and complex matters related to the reviewable conduct provisions of the Act. Most recently, she served as Associate Deputy Commissioner in the Criminal Matters Branch. Jeanne has been a valued member of the Bureau’s management team, and I know that her wealth of expertise in enforcement, and her experience in litigation, will continue to be great assets to the Bureau.
I’m also pleased to share with you that we’ve appointed a new Executive Director of Communications and Outreach. David Gamble has joined the Bureau from the Department of Finance, where he held the position of Director, Public Affairs & Operations Division. David has a background in political journalism, including serving as Deputy Bureau Chief for Sun Media’s Parliamentary Bureau, in addition to a wealth of expertise in public affairs from positions at Finance and the Treasury Board Secretariat.
David will be supporting the communications and outreach function of the Competition Promotion Branch, which is headed by Deputy Commissioner Rambod Behboodi. As many of you already know, the new Competition Promotion Branch brings together our outreach and advocacy initiatives, our international and inter-governmental affairs, and our corporate compliance unit.
That leads me to my next topic — our continued efforts in promoting maximum compliance with the Competition Act and the other legislation we enforce.
We are currently in the process of finalizing the Bureau’s revised Corporate Compliance Programs Bulletin, which will provide updated guidance for the private sector on how to develop and maintain effective corporate compliance programs. The revised Bulletin will also reflect a more modern, incentives-based approach to such programs by providing for the possibility of fine reductions for companies with a credible and effective program, but who are nonetheless involved in a violation.
I thank all our partners in the Bar for their constructive input during our consultation on the draft Bulletin this past fall. We are incorporating that feedback where appropriate, and we hope to have a final product ready sometime in the spring. We will then be rolling out the revised Bulletin, along with other complementary compliance tools for small and medium businesses, on a cross-Canada compliance roadshow. That initiative is part of a deliberate effort to promote compliance directly to a broader range of business communities, including those in Western Canada and the Maritimes.
That effort also reflects a view that is central to the Bureau’s approach to compliance, and one I have spoken about many times in the past. It’s a view that compliance is a shared responsibility, where we — the Bureau, the Bar and businesses — each have a role to play in building a culture of compliance that benefits us all.
The business argument for taking corporate compliance seriously is a simple one to make. First, an effective corporate compliance program is preventative medicine that protects businesses from violations of the law — including unintended ones — that would otherwise put them on the receiving end of a highly disruptive enforcement cure administered by the Bureau. Even when a corporate compliance program fails to prevent anti‑competitive conduct from occurring, it may help companies qualify for immunity from prosecution where they are the first to self-report to the Bureau. Second, compliance with the law ensures that businesses can operate on a level playing field within efficient markets driven by healthy competition, opening the door for innovative practices and products that benefit consumers, businesses and the Canadian economy as a whole.
The Bureau does its part promoting compliance through transparent and predictable enforcement practices, through advocacy and regulatory interventions, through guidance for businesses and the Bar, and by rewarding parties who demonstrate a strong commitment to fulfilling their role in ensuring compliance.
The shared compliance approach also encompasses the Bureau’s readiness to engage with parties in enforcement matters in order to resolve our competition concerns through voluntary mechanisms, where appropriate. Three recent cases involving water heaters provide perfect examples of shared compliance. The Bureau reached resolutions with Reliance Comfort Limited Partnership in an abuse of dominance case, with EnerCare Inc. in a mergers case, and with National Energy Corporation in a false or misleading representations case. These resolutions strengthen competition and consumer choice in Ontario’s residential water heater industry.
Taking a collaborative approach to compliance frequently results in the most efficient and timely resolution for the Bureau, businesses and consumers alike. However, while we’re open to collaborative resolutions, we will pursue vigorous enforcement action where appropriate — after all, enforcement is our bread and butter at the Bureau. That brings me to the topic of two recent court rulings and their potential impact on future enforcement.
Tervita — Supreme Court of Canada
On January 22nd, the Supreme Court of Canada released its decision in Tervita. This is the first decision from the Supreme Court in a merger case in almost 20 years and it provides clarity on two important issues related to the merger review process — the framework for assessing "prevention of competition" cases, and the application of the efficiencies defence. The Bureau is still carefully reviewing the decision and its implications to determine how best to responsibly administer the review process.
By way of background, Tervita Corporation (formerly CCS Corporation) owns the only two hazardous waste landfills in Northeastern British Columbia. As part of its acquisition of Complete Environmental Inc. in 2009, Tervita acquired Complete’s interest in Babkirk Land Services Inc., which held a permit to develop a new secure landfill site in Northeastern British Columbia. The Bureau filed an application with the Competition Tribunal in January 2011 alleging that this transaction was likely to substantially prevent competition in secure landfill services in Northeastern British Columbia. The Bureau sought an order requiring that the transaction be dissolved or that Tervita divest the Babkirk landfill site and associated permits.
The Tribunal found in favour of the Commissioner and ordered Tervita to divest the Babkirk site. This decision was subsequently upheld by the Federal Court of Appeal in 2013, following which Tervita was granted leave to appeal to the Supreme Court of Canada. The Supreme Court heard the appeal in March 2014 and issued its decision late last month.
So what is the decision about and why is it important?
First, the Tribunal can issue an order under the merger provisions of the Act where it finds that a merger or proposed merger prevents or lessens, or is likely to prevent or lessen, competition substantially. In this case, the Supreme Court upheld the Bureau’s approach for assessing whether a merger is likely to result in a substantial prevention of competition. Specifically, the decision confirms the Bureau’s use of the "but for" test to assess the impact of a merger. It confirms that the relevant question to ask is "what would the market look like ‘but for’ the merger in question".
The Supreme Court set out a two-part test for analyzing prevention of competition cases. The first step involves identifying the firm prevented from entering the market. The second step — and this is the heart of the "but for" test — involves determining whether timely, likely and sufficient entry into the market would have occurred "but for" the merger. The impact of that entry is then assessed to determine whether the merger results in a substantial prevention of competition.
Second, the Tribunal is prohibited from making an order under the merger provisions of the Act if it finds that a merger or proposed merger has brought about or is likely to bring about gains in efficiency that will be greater than, and will offset, the effects of any prevention or lessening of competition. Here, the Supreme Court provides welcome clarity on how to determine whether efficiencies are greater than, and offset, anti‑competitive effects. In particular, the Supreme Court concluded that "greater than" involves a numerical comparison of effects and efficiencies, while "offset" refers to a counterbalancing of the qualitative aspects. The Supreme Court also emphasized which classes of efficiencies should be considered cognizable under the Act and directed the Bureau to quantify anti‑competitive effects where possible.
The Tervita merger is now the second domestic transaction – the first being the Superior Propane merger — that was found by the courts to be anti‑competitive but allowed to proceed due to the efficiencies defence. In line with my own thinking, Justice Rothstein’s postscript to the Court’s decision suggests that Tervita may not reflect what Parliament had in mind when creating the efficiencies defence to support the ability of Canadian firms to compete in international markets. Neither Tervita nor Superior Propane focused on Canadian firms operating internationally, as the efficiencies in both cases only impacted domestic markets.
Nevertheless, we will be considering the impact of this decision on our merger review process, particularly with respect to the efficiencies defence, and determining our next steps. In response to the Supreme Court’s directive to quantify anti‑competitive harm wherever possible, we have begun to analyse the extent to which the Bureau will need to seek additional types of documents and data to support its reviews. We will also be determining the best ways to seek that information when necessary and considering how the statutory powers available to us — supplementary information requests (SIRs) and section 11 orders — may be used for this purpose.
Practically speaking, what does this mean for merging parties? Quite simply, it means that in cases where litigation is a real possibility, we’ll need to gather more information from the merging parties and, in some instances, third parties. At this point, we don’t know if requests for information will become standard in SIRs or at what point we’ll be seeking information from third parties. We’re assessing this internally and seeking external advice from experts. We’ll keep the Bar advised of our progress in this area.
Before I move on, I have a final comment on the Tervita decision from the perspective of an economist. The Supreme Court’s decision demonstrates a need for more econometric evidence and analysis in merger reviews, and that should be a great boost for the profession. Now, I know that most people already have a natural tendency to see economists as the rock stars of competition law enforcement — but I’m still pleased that this ruling has clearly made that the only possible point of view.
Nestlé — Ontario Superior Court
The second case I would like to touch on is the recent decision of the Ontario Superior Court in Nestlé, which arose in connection with the Bureau’s ongoing price-fixing case against Nestlé Canada Inc., Mars Canada Inc. and ITWAL Limited. This decision raises important issues related to the application and scope of settlement privilege.
By way of background, Cadbury contacted the Bureau in July 2007 to request immunity from prosecution for its involvement in an alleged domestic price-fixing conspiracy. Cadbury cooperated with the Bureau and entered into an immunity agreement with the Director of Public Prosecutions (DPP) in May 2008.
After the Bureau obtained and executed search warrants against the alleged co-conspirators in late 2007, Hershey contacted the Bureau to request leniency. Hershey cooperated with the Bureau and entered into a plea agreement with the DPP in February 2011. Pursuant to this agreement, Hershey pled guilty to one count of price-fixing in June 2013 and was fined $4 million.
Shortly before Hershey’s guilty plea, the Bureau announced that criminal charges had been laid against three companies and three individuals for their role in the alleged conspiracy. Following the laying of these charges, the Crown began disclosing information to the accused. During this disclosure process, the Crown realized that it had disclosed some documents over which settlement privilege ought to have been claimed, since Cadbury and Hershey had not waived privilege. The Crown requested that these documents be returned, but the accused refused. They took the position that they were entitled to these materials, along with any other materials held back by the Crown on the basis of settlement privilege.
The Crown brought an application before the Ontario Superior Court for a determination of whether the documents in question were subject to settlement privilege, and Cadbury and Hershey were granted intervener status. The Court concluded that factual information provided to the Crown by cooperating parties prior to the execution of an immunity agreement or a plea agreement is not subject to settlement privilege and must be disclosed by the Crown. Information relating to negotiation over the wording in agreements, views expressed or legal opinions does not, however, need to be disclosed.
As with the decision in Tervita, we are continuing to analyze the implications of the Court’s decision in Nestlé. At this time, however, I think it’s fair to say that the specific context of the case is important. Here, the situation involves a criminal prosecution in which the Crown is proposing to call witnesses from an immunity or leniency applicant; the information from the immunity or leniency applicant appears to be relevant to the charges; and the disclosure of the information will not be used to the prejudice of the immunity or leniency applicant.
Will this decision deter parties from applying for immunity or leniency in the future? I don’t think so, particularly since our programs already make it clear that disclosure of such information is likely. In this regard, Justice Nordheimer stated as follows at paragraph 75 of his decision:
I also assume that any person, who decides to participate in one of these programs, only does so after serious consideration and analysis, in any event. […] any person who participates in the Immunity Program knows that it must reveal all of its non-privileged documents and make available all of its employees as potential witnesses. Anyone who participates in the Leniency Program does so with the same knowledge, and with the additional understanding that it will be subject to some penalty. […] Given all of those considerations, it seems to me that the additional consequence that pre-agreement disclosure will be added to all of the post-agreement disclosure will be unlikely to materially affect a person’s decision to participate, or not, in these programs.Footnote 1
It appears that Justice Nordheimer is also of the view that solicitor-client privilege, which may be attached to information gathered by counsel, is waived once this information is disclosed to the Bureau or the Crown in return for immunity or leniency.
As I’ve mentioned many times in the past months, my vision for the Bureau is of an organization that is open, balanced and transparent. As we move forward with this vision, it is with the expectation that you, our partners, will support and contribute to the shared compliance approach, will continue providing your feedback on items like the Compliance Bulletin, and will keep working with the Bureau toward a more collaborative relationship that benefits us all.
I’m going to wrap things up here, as I’m interested in hearing your comments and questions. Thank you.
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